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MLR - PMP 10/7/14

The S&P 500 and NASDAQ Composite both hit their 50-day moving averages yesterday before reversing course. Volume rose on the NASDAQ Composite but fell on the S&P 500. For reasons stated in the MDM report, it switched to a sell signal as these indices showed issues breaking through their 50dmas. That said, leading stocks have suffered substantial damage so could be due for a bounce, and QE ends this month as the last $15 billion is digested, so the current bounce may still be intact since QE is still in force.

Meanwhile, strong action in leading stocks has been countered by weakness as stocks like Mobileye (MBLY), which had a buyable gap-up on a breakout from a flag base formation on Friday reversed and dropped well below the 56.54 intraday low of the BGU day. Palo Alto Networks (PANW), which broke out of a short three-weeks-tight flag on Friday on a buyable gap-up move is also set to test its 101.22 BGU intraday low this morning. El Pollo Loco (LOCO) had a pocket pivot breakout yesterday through the highs of its handle within an overall cup-with-handle base. In this environment, as we've seen, such breakouts have not met with much success, adding to the cautionary tone.

The MDM remains on a sell signal as the NASDAQ and S&P 500 have thus far failed to clear their 50-day lines, and is likely to remain on a sell signal until and unless the market can clear this key line of resistance.

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